1. What is the Graham Formula?

The Graham Formula is a method for estimating the intrinsic value of a stock based on its earnings, growth rate, and current bond yields. It provides a simple way to assess whether a stock might be undervalued or overvalued.

2. How Does the Calculator Work?

The calculator uses the simplified Graham formula:

Where:

• \( V \) — Intrinsic value (USD/share)
• \( EPS \) — Earnings per share (USD)
• \( g \) — Expected growth rate (%)
• \( y \) — Current bond yield (%)

Explanation: The formula adjusts the traditional P/E ratio for growth and compares it to bond yields to determine fair value.

3. Importance of Intrinsic Value Calculation

Details: Calculating intrinsic value helps investors make informed decisions about buying or selling stocks, providing a fundamental anchor for valuation.

4. Using the Calculator

Tips: Enter EPS in USD, growth rate as percentage, and current bond yield as percentage. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What EPS should I use?
A: Use trailing twelve months (TTM) EPS or normalized earnings for cyclical companies.

Q2: How to estimate growth rate (g)?
A: Use historical growth rates, analyst estimates, or a conservative estimate based on the company's fundamentals.

Q3: Which bond yield should I use?
A: Typically use the 10-year Treasury yield as the risk-free rate benchmark.

Q4: What are the formula's limitations?
A: It works best for stable, mature companies and doesn't account for competitive advantages or specific risks.

Q5: How should I interpret the results?
A: Compare the calculated value to the current market price - a higher intrinsic value suggests potential undervaluation.